On Tuesday, August 11, the North Carolina House and Senate adjourned the 2009 regular session until May 12, 2010.  Although the House held a regular floor session on Monday, August 10, the Senate had completed all substantive work on legislation late last week.  On Tuesday, the House and Senate held pro-forma sessions to ratify legislation and make a formal adjournment by joint resolution.  The bulk of the legislative work that allowed for ending the session was completed in a grueling week of work last week.  This report will summarize the action during the week of August 3 and during the early part of this week leading to adjournment.  Even with the legislative session ending, we remain available to discuss your legislative issues and will begin work on our annual comprehensive summary of the legislative session. 

In separate votes on Tuesday and Wednesday, August 4 and 5, the House and Senate agreed to a compromise version of the State Budget.  The budget legislation (Senate Bill 202) enacts a detailed two-year taxation and spending plan for the State that totals about $19 billion during each of the next two state fiscal years.  Majority party Democratic lawmakers defended the plan in press conferences and in floor debates last week as a balanced approach to a budgetary crisis of historic proportions.  House Speaker Joe Hackney (D-Chatham) pointed to a $4 billion budget deficit that was partly repaired by raising taxes and fees, partly by Federal stimulus money, and partly by cuts in state spending as evidence of the moderate approach taken by Democratic lawmakers.  Senate Majority Leader, Senator Tony Rand (D-Cumberland), also defended the budget plan and the additional taxes it raises as sparing the state's citizens from the most drastic cuts to education and health and human services.  In both chambers, Democratic legislators passed the bill without a single Republican vote and not one Democratic Party lawmaker defected on the budget vote.  Late last week, Governor Perdue, also a Democrat, signed the bill into law. 

The budget became law five weeks into the new state fiscal year and was delayed by concerns over raising taxes.  While Senate tax law writers were pushing a comprehensive reform of the tax code, the House was uninterested and passed a budget that increased taxes for upper income earners, a small sales tax increase, and burdensome proposals such as mandatory combined reporting for corporate taxpayers.  As the negotiations between the House and Senate dragged on, individual tax proposals fell to the wayside.  The Senate's proposal to place a sales tax on services and the House proposal on mandatory combined reporting were among the items eliminated during the budget negotiations.  Governor Perdue entered the tax debate by insisting on more than $1.3 billion in tax increases to save schools and later by rejecting a tax proposal that she said too heavily taxed the middle class.  Lawmakers then returned to the drawing board and produced what would become the final tax package:  a full 1% sales tax, surcharges on corporate and personal income tax, new taxes on digital downloads, and increased excise taxes on alcohol and tobacco.  The increased tax burden on North Carolinians from the newly enacted State budget is roughly $900 million.  In addition, the budget contains authorization of new fees for all types of government services and/or licenses, totaling roughly $300 million. 

Despite using this new revenue to offset what would have been drastic cuts in State services, many programs will nonetheless be reduced under the newly enacted budget.  The General Assembly has given local school officials authority to implement a $225 million reduction in State funding, although it must be done without reducing average class sizes for grades K-3.  University tuition will increase and State support for University centers and institutes will be reduced or eliminated.  Community Colleges will have to find $14 million in budget reductions without affecting programs that retrain the unemployed.  State funding for reimbursements to Medicaid service providers, reductions in mental health funding, and elimination of hundreds of positions are among the cuts to the Department of Health and Human Services.  Several small prisons will be closed under the budget plan in order to consolidate corrections operations.  Environmental grant programs will be reduced and staffing at the Department of Environment and Natural Resources will be decreased under the budget plan.  Cuts in State spending included in the budget total over $1.5 billion. 

Outside of the State budget, the House and Senate approved dozens upon dozens of bills in the last two weeks.  Over 100 of these bills now await Executive action by Governor Perdue.  Under the North Carolina Constitution's veto authority, the Governor has 30 days in which to either sign or veto bills when the General Assembly is adjourned.  Any legislation which the Governor does not sign or veto within that time will automatically become law.  During the Governor's 30 day period to consider legislation, we will be following all the key legislation pending on the Governor's desk.  Below, we highlight a few of these bills and the action the brought passage in the waning days of the session. 

Legislation (House Bill 1305) to reform the Coastal Property Insurance Pool, formerly known as the Beach Plan, was approved by the General Assembly last week and now awaits the Governor's signature.  When House Bill 1305 passed the House in mid July, the conventional wisdom was that the bill would languish in the Senate where Senate President Pro Tempore Marc Basnight (D-Dare) would stop the bill's progress in order to protect coastal property owners from potential insurance rate increases.  After discussion and agreement on changes to the bill, Senator Basnight not only called for consideration of the bill but became a supporter and voted for its passage.  Among the protections for all property owners included in the bill is that surcharges on insurance rates can only be activated by the occurrence of a major hurricane in North Carolina.  Ultimately the bill will allow the Beach Plan to remain solvent and to continue to accumulate reserve funds so that the Insurance Pool can cover its multi-billion dollar potential liability.  Passage of the changes will also offer assurances and incentives for insurance companies to continue to write insurance policies on North Carolina's coast. 

Legislation (House Bill 148) that would allow local governments to finance mass transit options by increasing vehicle registration fees or implementing a voter approved sales tax increase passed the General Assembly and awaits Governor Perdue's action.  The "inter-modal transportation bill" allows certain counties to increase sales taxes by ½% and others by ¼% so that the counties can fund mass transportation such as expanded busing and light rail projects.  The legislation applies statewide but is based upon a similar authority granted to Charlotte and Mecklenburg County that led to the establishment of the Lynx commuter train in Charlotte.  The project has been a success in terms of ridership and in terms of increasing property values around the Lynx stations.  Proponents of the bill want to replicate that success in the Raleigh-Durham region and hope that the new revenue sources will be the first step in that success. 

Lawmakers have rounded out their work on various insurance law changes by passing two bills during the last two weeks.  House Bill 1166 would enact various changes to the insurance laws as requested by the Department of Insurance.  The changes affect insurance producers and brokers, bail bondsmen, premium finance companies and collection agencies, and others.  Also approved during the last two weeks was a Health Insurance Pool Pilot Program as proposed in House Bill 212.  The bill authorizes the establishment of one health insurance pilot demonstration project to provide a model for reducing the number of uninsured persons in North Carolina.  Both House Bill 1166 and House Bill 212 await action by the Governor. 

A controversial measure allowing persons convicted of capital offenses and/or sentenced to death to challenge their convictions or sentences because of racial bias has become law under Governor Perdue signature.  The "Racial Justice Act" (Senate Bill 461) declares broadly that "[n]o person shall be subject to or given a sentence of death or shall be executed pursuant to any judgment that was sought or obtained on the basis of race."  The Act sets up a number of legal challenges that a defendant could raise in order to show that race was the motivating factor in seeking or imposing the death penalty.  Proponents of the bill urged passage of the legislation because statistical analysis has revealed that non-Caucasian defendants are overwhelmingly more likely to be sentenced to death than are white defendants.  Although the bill is far short of the moratorium on death penalties that some have sought in recent years, its enactment represents a significant victory for advocates for fair administration of justice. 

Tax incentives legislation played a key role in the late session work of the General Assembly.  With Senate approval of Senate Bill 943, movie production companies are one step closer to being eligible for richer tax credits when they produce movies in North Carolina.  Important to coastal Wilmington and the mountain areas, supporters of the bill say that the increased tax credits will make North Carolina more attractive to production companies who have recently located in other states.  In other tax incentive action, the Canadian wood pulp processor Domtar would be eligible for grants should the company maintain employment levels and meet other requirements under House Bill 884.  Domtar achieved the legislative victory with the aid of the Department of Commerce who administers the grant program in order to maintain jobs that might otherwise leave the state.  The grant program known as the Job Maintenance and Capital Development Fund, or JMAC, is limited to a total of $69 million in grants or $6 million to any one recipient.  House Bill 884 and House Bill 943 now await action by Governor Perdue. 

Work on environmental legislation was completed in the last two weeks of the legislative session.  Under House Bill 512, the tax credit for investing in renewable energy property would be extended to geothermal heat pumps.  Also, the credit could be applied to the gross premiums tax and the sunset of the credit originally scheduled for 2011 would be extended to 2016.  Under House Bill 1236, commercial car washes could participate in voluntary certification programs if they demonstrate a 20% reduction of water consumption over a six month period.  The certified commercial car washes would then be protected from any local government order to reduce water consumption during emergency drought conditions.  The long running battle over who should clean up Falls Lake by how much and when remains in limbo, but was addressed by the General Assembly in Senate Bill 1020.  Senate Bill 1020 directs the Environmental Management Commission to grant credits to local governments who reduce water pollution in the Upper Neuse River Basin prior to the time when the Commission adopts permanent rules that detail cleanup requirements.  Lastly, local governments will have the authority to establish revolving loan funds for financing installation of distributed generation renewable energy sources or energy efficiency improvements if House Bill 1389 becomes law.   Each of these bills awaits action by the Governor. 

The General Assembly has put to rest a multi-year struggle over pension eligibility and benefits levels of the state's Registers of Deeds in approving Senate Bill 133.  Some years ago, Registers of Deeds became eligible for richer monthly pension benefits under what the non-partisan legislative staff has been called a drafting error.  Previous attempts to correct the error would have reduced benefits of persons already eligible or receiving benefits.  Senate Bill 133, however, accomplishes the correction but applies only prospectively, that is, the legislation would affect no person currently serving as a Register of Deeds.  The NC Association of Registers of Deeds supported the bill that now awaits action by the Governor. 

A major reform (Senate Bill 974) to the statutory process for conducting a foreclosure under power of sale was approved by the General Assembly late last week.  Termed the "Consumer and Economic Protection Act of 2009," Senate Bill 974 became a point of interest for the political battle that ensued between Secretary of State Elaine Marshall (D-Wake) and Attorney General Roy Cooper (D-Wake) more than the policy it would enact.  Both Democrats are rumored to be considering a challenge to U.S. Senator Richard Burr (R-N.C.) in 2010.  Secretary Marshall's Department of the Secretary of State currently has authority to regulate sale and marketing of securities, but Attorney General Cooper sought additional authority for his Department of Justice to do the same under this bill.  As the bill was debated in House committees the provisions became too controversial and were dropped from the bill, effectively handing the victory to Secretary Marshall.  As to the substance of the bill, it would add additional protections for homeowners facing foreclosure and even further protections for those being foreclosed under a high rate spread yield mortgages.  Senate Bill 974 now awaits action by the Governor. 

Lastly, the General Assembly dealt with several miscellaneous legislative issues before adjourning for the year.  The Speaker of the House and the President Pro Tempore of the Senate saw their appointments to various State Boards and Commissions confirmed by the General Assembly in the passage of House Bill 764.  The General Assembly also approved technical corrections recommended by the General Statutes Commission (Senate Bill 220), "clarifying changes to state laws" (House Bill 274), a "General Statutes Clarifying Correction" (House Bill 191), technical corrections to the State Budget (House Bill 836), technical corrections to the environmental laws (Senate Bill 838) and technical corrections to the revenue laws (Senate Bill 509).  The General Assembly authorized its commissions and committees to conduct various studies (House Bill 945) and approved municipal occupancy taxes for several towns and cities (Senate Bill 80).  The General Assembly also approved legislation that requires many State agencies to adopt rules that will increase accountability for Federal stimulus funds (Senate Bill 960).